IRS Launches Anti-Fraud Program to Help Businesses that Filed ‘Questionable’ ERC Claims

By Ali Donaldson, Inc. (TNS)

The IRS is offering businesses a big present just in time for Christmas: a chance to avoid an audit or criminal investigation.

The agency launched a new program to help businesses that applied for “questionable” employee retention credits (ERC) and received them, particularly companies that may have filed for the credits in error. The program allows those businesses to voluntarily return money they received without having to pay any penalties or interest. The ERC is a refundable tax credit that was enacted during the height of the pandemic to encourage businesses to keep their employees on payroll. This olive branch marks the latest step by the IRS to clamp down on fraud within the program—much of which the agency blames on aggressive marketing tactics and misleading claims by so-called ERC mills, which have encouraged ineligible businesses to apply for the credit.

Danny Werfel

“The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied,” said IRS Commissioner Danny Werfel in a statement announcing the program on Thursday. “We hope these taxpayers take advantage of this window now.”

The agency said this new voluntary disclosure plan has been in the works for months and will work alongside the agency’s existing withdrawal program, which allows businesses to retract pending ERC claims without facing any interest or penalties. The agency has warned taxpayers about scam promotions pertaining to the program for months now, and Werfel said the new initiative would also help the agency get more information on the ERC mills “who created this situation.” The IRS said that hundreds of criminal investigations are currently underway and thousands of claims have already been flagged for audit.

Businesses interested in taking advantage of the disclosure program have until March 22, 2024 to apply. If accepted, employers will be responsible for repaying 80% of the tax credit to account for the fees charged by these ERC-only shops, and installment agreements will be allowed on a case-by-case basis. Employers will not be required to return any interest received on the claim.

“There are many employers eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess,” Werfel said. “The disclosure program’s 80% repayment figure is much more generous than later IRS action, which includes steeper costs and greater risk.”

To qualify for the program, the business must not be under criminal investigation, nor have been notified that they are under criminal investigation. If an employer has already received a notice from the IRS demanding repayment of some or all of their ERC, they are not eligible. Businesses must also be willing to provide the IRS with information about any tax advisors or preparers that helped them apply for their claim.

Further details about the program can be found on the IRS website.

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